IR35 is a set of UK tax laws that prevent individuals from avoiding paying taxes and National Insurance contributions by providing services through a company rather than as an employee. In recent years, there have been numerous changes to IR35 that contractors and consultants need to understand. This article will provide a comprehensive overview of the key changes to IR35 in the UK.
One major change to IR35 was the introduction of “off-payroll working” rules in April 2017. These rules aimed to address the issue of “disguised employment,” where individuals were providing services through a company, but were in reality employees. The responsibility for determining IR35’s applicability shifted from the individual to the client under the off-payroll working rules
In April 2021, the rules were tightened further with the introduction of “off-payroll working” rules for the public sector. Public sector clients now have to assess contractors and consultants’ employment status and pay taxes and National Insurance contributions accordingly. This means contractors and consultants in the public sector may have to provide more information about their working arrangements to clients to prove they are not employees.
The government introduced the “check employment status for tax” tool in April 2020 to help individuals understand their tax obligations and provide clients with a clear indication of their employment status. This tool allows individuals to check IR35’s applicability to a particular contract.
The use of “umbrella companies” has also become more prevalent in the IR35 arena. These companies act as intermediaries between contractors and consultants and their clients, providing services such as invoicing, payroll, and tax compliance, making it easier for contractors and consultants to manage their affairs. However, some umbrella companies may not be operating in a tax-efficient manner and may be used to avoid paying taxes and National Insurance contributions.
In conclusion, there have been many changes to IR35 in the UK in recent years, tightening the rules around off-payroll working and making it easier for individuals to check their employment status for tax purposes. It’s crucial for contractors and consultants to understand these changes and ensure they are meeting their tax obligations.
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